Advertisement

Blog

Beware of Growing Chinese Labor Unrest

On the list of things an electronics executive should have to worry about, the price of blue jeans would seem to be safely low on the list. However, when last week's news broke of violence in Zengcheng, China, sparked by the arrest of an illegal denim hawker, the wise money in Asian electronics took notice.

What was notable about the unrest wasn't that it happened, but that it got reported, filmed, distributed, and talked out internationally, in defiance of the Chinese government's usual success burying such news. This is particularly important since Zengcheng, though known as a hub of China's apparel industry, is only an hour or so from Guangzhou, a behemoth manufacturing region, where rather than work in cotton, they more often work in silicon.

Outside China, in neighboring Asian regions and beyond to the larger world, the particulars of the Zengcheng disturbance is what translates. In Europe, or Australia, or even India, I'd wager, few care whether the argument was about blue jeans. What we see from outside, rather, is the latest evidence of growing boldness by Chinese labor and small business to demand concessions of employers and governments, local and national. Or at the very least, we are seeing more success at making the existence of those demands known around the world.

We have now seen a series of events that we would not have heard about quite so completely even five, six years ago. Beginning with public admission of suicides at Foxconn's factories, then protests about wages, the recent fatal explosion also at Foxconn, and now Zengcheng unrest hitting YouTube, the next question is: What happens, both in terms of supply pressures and public perception, when electronics has its Zengcheng? (See: Apple Has a Foxconn Problem.)

That's not a theoretical question. As we learned from Japan's recent tsunami, investors are extremely nervous about the fragility of Asian supply chains. With good reason. Asia's international chain of fabricators, assemblers, and shippers is unusually complex, and it seems that lately everyone is talking about the once-unthinkable option to reduce exposure to China. First it was rising wages. Then it was labor conditions. And now, with examples of hard-line responses to labor protections, Indonesia, or India — or, for that matter, non-Asian locations closer to consuming markets — will start looking more and more attractive.

The fairly obvious solution to all this is the one that seems least likely to happen. That would be for reasonable requests by Chinese workers to find acceptance as free speech. “I feel the rule of law here doesn't seem to exist, the local officials can do what they want,” a Chinese manufacturing worker told Reuters after the Zengcheng unrest. If that's true, and more and more evidence of pushback starts bubbling into the international media, Wall Street is going to start seeing China as the risky stop in Asia's already-stretched supply system, and will start looking for assurances.

And if they're able, which they certainly appear to be, Chinese labor advocates will use the heightened investor nervousness to increase pressure on manufacturers. And if that happens, it will come down to a struggle between OEMs that need their suppliers humming, and Chinese officials who so far have seemed more wont to tamp down evidence of problems than alleviate them.

Years ago, part of the technology revolution was the replacement of the stuffy east coast business suit with blue jeans, the unofficial uniform of Silicon Valley. Suddenly, that's looking like an apt but less comfortable metaphor.

18 comments on “Beware of Growing Chinese Labor Unrest

  1. Houngbo_Hospice
    June 24, 2011

    There is nothing wrong about asking for improvements at workplaces especially in China where uncompetitive wages are offered by foreign companies. China used to be famous for its cheap labour force, but this will change in the few years to come, and industrial companies just have to be aware of that.

  2. Himanshugupta
    June 24, 2011

    I have two comments. One that looking for cheap and less strict labour rule is not the only requirement now-a-day but a qualified workforce, good infrastructure and big market opportunity is equally important…and Asia fits well. And asking for better work conditions and pays should not be looked as a bad sign but i would say a good sign because noone begs from beggers. Some unrest in Asia means economy is growing and thus should improve the living standard.

  3. Houngbo_Hospice
    June 24, 2011

    “Some unrest in Asia means economy is growing and thus should improve the living standard.”

    Labor disputes are a fact of life in advanced and emerging socities and I agree that companies executive boards should be open to negociated settlements with the employees' unions. Asia workforce will surely be more productive in better working conditions. That's what I hope employers could understand.

  4. AnalyzeThis
    June 24, 2011

    @Hospice, I do certainly agree that labor disputes aren't some new amazing unprecedented thing.

    While the recent news is troubling and perhaps a possible indicator of future problems, the truth is that no location is perfect and that you won't be able to avoid labor unrest and growing wages simply by packing your bags and leaving China.

    China isn't going anywhere. Will we see more investment in “alternative” nations in the coming years? Absolutely. And sure, these events do make other markets seem more enticing, but you know what they say about the grass always being greener on the other side…

  5. mario8a
    June 24, 2011

    Hello

    I have some friends in China, they increased the salary even 400% in less than a year and some of them have brand new cars and few of then even two houses, if you visit a city and visit again after 2 year, you will find a new city and development for new changes.

    Regards

  6. Houngbo_Hospice
    June 24, 2011

     

    Hi mario8a,

    In china there are vivid disparities between the rural and urban areas. Life in cities has surely been improving fast and many Chinese are living in conditions comparable to those in the developed countries. But many things remain to be done especially in the manufacturing industries.

     

  7. itguyphil
    June 24, 2011

    I think once there are more incentives to stimulate manufacturing, it will happen organically.

  8. Anna Young
    June 25, 2011

    “this is the evidence of growing boldness by Chinese labor and small business to demand concessions of employers and governments,local and national”

    The Chinese government's policies have hightened the disparities in china.

    Its policies are systemically squeezing out small businesses that are on the low end whilst giving room to high – valued firms to expand. Imagine the impact on these businesses, many of which have folded up and yet have dependants to care for and so on.

    I think it's about time this is aired around the world. This may force the hand of the government to act.

  9. Taimoor Zubar
    June 25, 2011

    I do agree that labor unrest in China is something that the government and the businesses have to address to. If the issue is not addressed at the correct time, it may lead to further disturbances and turmoil. Assuming the manufacturers and OEMs decide to accept the demands of the labor force, what impact would it have? It makes sense to assume that the manufacturing would go up. Would that be such a significant increase that China is no longer able to keep its competitive advantage?

  10. Anand
    June 25, 2011

    Chinese labor advocates will use the heightened investor nervousness to increase pressure on manufacturers.

    Seems like finally international pressure is working. But just wondering if this will stop here or will it lead to another uprising, similar to the one we saw in Arab ?

  11. FLYINGSCOT
    June 25, 2011

    As long as there is an insatiable demand for low cost disposable goods I fear workers in places like China and India will not be treated as fairly as workers in other countries.  This problem is exacerbated in countries where freedom of movement and speech is limited.  Personally I would rather consume less and pay more for goods to ensure workers across the world get a fair deal.  I wish companies did not continually chase the cheap labor markets and instead thought more locally.  However I cannot see how this trend will change until all countries reach the same level of prosperity and have the same values and expectations when it comes to the rights of the workers.  This will take generations to happen.

  12. hwong
    June 25, 2011

    Every company is trying to cut cost and drive profit margin up. That'd why there will always be demand fo workers in china to manufacture cheaper goods. Until one day the wage will increase due to decrease of supply. So this will problem will persist. China merchants is making alot of money while the workers probably work for $5 per day. The rich and poor separation becomes bigger gap

  13. mario8a
    June 26, 2011

    Hello Hwong

    I think we need to add to your comment, the workes actually live in the factory, and sometimes thry only go out to travel to their home towns.

     

    Regards

  14. HM
    June 27, 2011

    Hello Mario, Hello Hwong

    I used to think that all major international brands (all of those that has 'made in china' label) own a production unit (or tie-up with a major firm) in China. And China is progressing as a country by means of its labour force and they are paid well in terms of their local cost of living.

    Surprised that the trained people working day and night are paid low. I am sure that rest of the world including me (are forced to) buy brand China because of the competitive pricing but still I am sure we are paying enough to pay a labour more than $5 a day. I have seen that in other Asian countries like India even untrained labour makes sure that they get more than $5 if they are working.

    I beleive that these are middle men or agents who exploit labour force. And people have to come out of such production units and look for better prospects.

    just a thought:  When cost of living is going up anyways and cost of everything is going up I dont think consumers will have probelm paying a bit more for the good of all. And electronics industry can loosen their grip a bit (in terms of rates and marjins) so that they wont kill their labour in the process of making big bucks.

    Hari

  15. Ashu001
    June 27, 2011

    Marc,

    The biggest mistake that Western Investors/Bloggers/pundits make is underestimating the will and ability of the Communist Party to do whatever it takes to hold onto Power in China.

    They will do whatever it takes and mind you-Don't expect them to sit around waiting for approval from Western Observers before they clamp down dissent bigtime.

    Its not going to be a pretty sight when it happens-Remember Tianmen Square anyone??

    Regards

    Ashish.

  16. Ashu001
    June 27, 2011

    Scot,

    I don't think its fair to put India and China in the same bracket when it comes to freedom of expression/speech.

    India is by far one of the freest countries on the planet-In fact most people say you got too much freedom there.

    India has the freest press in the world-Much freer than America as well….

    As far as enforcing workers rights is concerned.You will be amazed at how far this factor has gone in India.Workers have taken things into their own hands to get what is rightly theirs.Oppression exists only in the remotest backwaters of the country[Even there somehow or the other the byte hungry media manages to reach and turn ordinary people into total celebrities..]

    Regards

    Ashish.

  17. Ashu001
    June 27, 2011

    Marc,

    If the Chinese Govt would have let the Yuan float freely (against the USD/EUR and JPY);then it would have been able to absorb all the liquidity by strengthening upwards.

    For sure this would make it difficult for exporters to compete/dump their products on the rest of the world but it would consequently also create a richer class of Consumers in china who would then be free to buy products from all over the world-Thereby leading to a rebalancing of the world economy-Something which is long overdue.

    Regards

    Ashish.

  18. Ms. Daisy
    June 29, 2011

    “However I cannot see how this trend will change until all countries reach the same level of prosperity and have the same values and expectations when it comes to the rights of the workers.”

    This is everyone's wish, but I don't see it happening in our lifetime. What believe is certain however is the will of the people of China will eventually prevail. Its a matter of time, the country will evetually erupt into labor unrest.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.